Question: Paymaster Enterprises has arranged to finance its seasonal working capital needs
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $100,000 for a period of three months, what is the annualized cost of the bank loan?
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